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Ten Myths of Addressing Global Warming and the Green Economy

Ten Myths of Addressing Global Warming and the Green Economy

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Published by Andy Arthur

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Published by: Andy Arthur on Jun 30, 2010
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The InformaTIon Technology & InnovaTIon foundaTIon
erhaps no social and economic issue is getting so much at-tention these days as the need to transition to a low-carbon
economy. Most scientic evidence suggests that a 50 to 85
percent reduction in greenhouse gas emissions (GHG) must occur by 
2050 to prevent global temperatures from rising more than two de
grees Celsius. Toward that end, numerous advocacy groups, scholars,think tanks and others have proposed a variety of steps to take basedon a set of assumptions about the green economy. Yet, while we needto take bold action to address climate change, much of what passes forconventional wisdom in this space is in fact either wrong or signi
-cantly exaggerated.
 There are several key reasons why conven
-tional wisdom is incorrect, or at best sig-
nicantly overstated. One is that becausethe magnitude of change needed is much
larger than many realize,
many conven
tional solutions simply won’t achieve the
global scale needed. The simple equation
below demonstrates the scale of the chal
-lenge. Growth in global GHG emissions
is largely a factor of population change,
per capita income change, and our “dirti-
ness” of every unit of consumption. Thelast factor describes how much less pol
luting (in terms of GHG emissions) our
business-as-usual economy needs to
become as the other two factors vary.
Greenhouse Gas Change = Popula-tion Change * Per-Capita IncomeChange * Dirtiness Factor
 Numerous advocac groups, scholars, thinktanks and others have  proposed a variety of steps to address global warming based on a set of assumptions about the  green economy. Yet,while we need to take bold action to address climate change, much of what  passes for conventional wisdom in this space is in  fact either wrong or 
signicantly exaggerated.
 Ten Myths of Addressing Global
 Warming and the Green Economy 
If the goal is to reduce GHG by 50 per
cent by 2050, it’s not enough for eachunit of economic activity to be 50 per
-cent “cleaner.” Global population isexpected to grow by 46 percent (nota desirable goal and one we can and
should take efforts to slow). Moreover,
per-capita income growth is expectedto increase by 129 percent (a desirable
goal). Put those two factors together,and now the planet’s economic activity must become 84 percent less polluting to achieve the over 50 percent reductionin GHG. That is, we need an 84 percentreduction in our “dirtiness” for every unit of energy we utilize. By any mea
sure, this is a great hurdle given the ex
-pectations that neither population norincome growth are going to hold steady 
over the next four decades.
by RobeRt D. Atkinson AnD DARRene HAckleR |  June 2010
The inormaTion Technology & innovaTion oundaTion
June 2010
pAge 2
 A second factor limiting the discourse is the belief of many that innovation is “manna from heaven” thateither just happens or perhaps occurs if we raise theprice of carbon by some modest amount. But in fact,innovation in general, and energy innovation in par
ticular, is a quite difcult and complex process that is
dependent on much more than modest price signals.
Energy innovation requires a coherent energy innova
-tion policy.
 Third, as we note in a forthcoming ITIF report, the cli
-mate change debate has to date largely been shaped by 
several dominant and competing economic doctrinesor worldviews, each with a different approach, orienta
-tion, and bias toward certain policies and actions.Here are ten widespread myths about how we addressglobal warming and grow a green economy that de-mand our attention.
1) HigHeR pRices on gReenHouse gAses AReenougH to DRive tHe tRAnsition to A cleAneconomy
Reality: Better price signals are helpul, but not su- cient in signicantly reducing GHG.
 The dominant policy approach to reducing GHG and
boosting U.S. clean energy industrial competitivenessfocuses on establishing a price on emissions of carbon
dioxide and other global warming pollutants throughcarbon taxes or cap and trade. Proponents includeeconomists likeGreg Mankiw, Glenn Hubbard, Wil-liam Nordhaus, scientists like Joe Romm and James
Hansen, and virtually all of the environmental com
But it is naïve to believe that these policies cansucceed on their own for several reasons.First, for many clean energy technologies to be com
petitive with fossil fuels, governments would have toset very high prices for carbon pollution, and typically governments face stiff political resistance to doing so.
  Thus, political considerations mean that any carbonprice (through tax or cap and trade) established will be
relatively low, as in currently pending U.S. climate andenergy legislation, which would establish a price aver
aging roughly $15 per ton of CO2-equivalent for therst decade of the program (2012-2021) – the equiva
lent of a roughly 15 cent increase in the price of a gal
lon of gasoline.
Even if it were politically feasible to hike carbon prices
radically, we still cannot assume it would induce chang-
es in behavior. If higher carbon prices are really the key 
to spurring change, then more Europeans would be
driving around in electric cars. Europeans (and the restof us) will drive electric cars when we have better bat
teries (and the infrastructure that supports electric ve
-hicles). In many European nations the price on carbon
for transportation fuels is around $400 per ton, whichis the amount reected in their overall transportationfuel taxes. Yet, while the high tax induces Europeansto drive smaller cars and drive less than Americans,
it has not induced them to switch to electric cars. In
fact, there are virtually no electric cars in Europe. Thereason is simple. Price signals only lead to behaviorchange when there is a viable substitute. If beef sud
denly tripled in price this summer, Americans would begrilling a lot more chicken. Preferences aside, there isa less expensive substitute for beef – and a pretty good
one at that. This is not the case when it comes to energy 
alternatives. Electric cars, for example, are still at the
prototype stage as a practical matter and priced well
out of reach for most consumers. Even those who canafford these vehicles face an inadequate infrastructurefor widespread use. And as discussed below, let’s notfall into the trap of thinking that if the world achievedEuropean driving habits (smaller cars and fewer milesdriven per capita) that GHG emissions would go downby 2050. In fact, with the massive expected increase
in automobile ownership globally, they will go up dra-matically.
If higher carbon prices are really the key to spurring change, then more Europeans would be driving around in electric cars.Europeans (and the rest of us) will drive electric cars when we have better batteries (and the infrastructure that supports electric vehicles).
 Also consequential is that an economy-wide carbonprice would not overcome specic barriers to the adop
tion of particular technologies. While a modest carbon
price may help some lower-cost and more mature cleanenergy technologies (e.g., wind power) become more
competitive with fossil fuels, it will do little for less ma
ture and currently more expensive technologies such as
The inormaTion Technology & innovaTion oundaTion
June 2010
pAge 3
solar energy or carbon capture and storage or needed,
but not yet developed, breakthroughs (such as algae-based energy). Carbon prices alone cannot solve themany non-price barriers specic to the adoption (ordevelopment) of emerging clean technologies.
Finally, a high carbon price does not solve the problemthat companies who innovate aren’t able to keep all of the knowledge from that innovation and the long-termrisks associated with large private investments in tech
nology development and deployment. Nor does it facil
itate the establishment of critical infrastructure, such
as new transmission lines, grid upgrades, or storage
for intermittent sources like wind and solar.
In other
 words, we are kidding ourselves if we expect privatecompanies to set the pace for a historic recongurationof how to produce and consume energy.Only a concerted government clean energy innovationstrategy that encourages private sector innovation willlead to practical, affordable alternatives in clean energy production and consumption. Carbon pricing forcespeople simply to accept higher prices for a good or ser
 vice that has no substitute, and the private sector dragsits feet in supplying that substitute until it is monetarily useful to do otherwise. (See Myths 4 and 8.)Some left-of-center critics might respond by acknowl
edging that prices have limitations, but respond that
regulations (e.g., the “cap” in cap and trade or tougher
efciency regulations and renewable energy standards) will get us there. But to use the example above, whilea regulation reducing the amount of beef that can beproduced in America would likely lead Americans toeat more chicken (and also increase beef imports), strin
-gent regulations on carbon emissions with limited low-
carbon alternatives will lead to a signicant increasein the price of carbon. These prices will ultimately bedifcult to support in the American political environ
ment and even harder in low income countries. Not to
mention how such regulations will also result in more
“imported” carbon from a larger trade decit in energy intensive manufacturing and its ensuing concomitantloss of jobs.Most tax and/or cap-and-trade advocates give lip ser
 vice to the need for clean energy innovation. Their ma
jor focus is clearly on increasing the price of carbon
and/or regulating emissions. Just look at their nearly 
unanimous support for current House and Senateclimate change legislation that gives short shrift to aserious clean energy strategy. For the most part, cap-and-trade advocates have done almost nothing to buildpolitical support for a clean innovation strategy to pro
-mote and support clean technology R&D, deployment,and commercialization. The reason is clear: they be-
lieve that prices and/or caps will do the job. Yet, from development economist Jeffrey Sachs andMicrosoft’s Bill Gates to Energy Secretary Steven Chu
’s Fareed Zakaria, there is increasingly 
acknowledgement that a price on carbon and a non-binding carbon cap will not be enough to result in the
level of private sector investment in technology thatcap-and-trade proponents have long promised. Conse
quently, current proposals will fail to adequately reduce
U.S. emissions and ignore the global growth-energy predicament. We need a concerted clean energy inno-
 vation strategy to de-carbonize energy production that will not only address U.S. emissions but also provide viable, affordable alternatives on a global scale.
2) tHe u.s. cAn mAke mAJoR contRibutionsto solving climAte cHAnge on its own
The energy needs o the rest o the world will result in them producing the lion’s share o GHG; any solution must be one that is able to be adopted by every nation in the absence o regulation or energy taxes.
Many of the proponents of taking action on climatechange focus narrowly on the United States, assuming that signicant U.S. progress will make a major con
-tribution to decarbonization. The problem with this
assumption is that most U.S. proposals are themselvesinadequate. As demonstrated in the equation above
and described in Myth 1, higher carbon prices alone
 won’t enable us to reach a 50 percent global reduc
-tion in GHG under this growth scenario. The current
U.S. legislative response is to create a “price mecha
-nism” with a “cap-and-trade” regime, and then stack 
regulations or incentives upon it, including subsidiesfor renewable energy, more stringent Energy Star orCorporate Average Fuel Economy (CAFE) standardsfor home appliances and automobiles, respectively, as well as designing new enforcement mechanisms. Forexample, the recently unveiled American Power Act
by Senators John Kerry and Joe Lieberman proposes

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